ZURICH/LONDON (Reuters) - Investors must not be complacent in valuing assets after efforts by central banks to pump money into struggling economies, a global financial risk watchdog said on Monday.

After a meeting in Zurich, the Financial Stability Board (FSB) chaired by Mark Carney said risks remain even though markets have improved and banks are in a healthier state.

"Medium-term downside risks remain, given weak growth prospects and high levels of public and private sector debt in many economies. Continued strains on bank asset quality reinforce the need to complete financial repair," Carney said.

"Market participants and authorities need to be on guard against mispricing of risk and valuations of assets," he said, adding that low market valuations of banks was partly due to investor concerns over their asset valuation practices.

However, Carney sounded a more optimistic note in his personal comments on the progress made by banks.

"I'm not going to make a buy, sell, hold call on the global banking system from an equity perspective," said Carney, who is also governor of the Bank of Canada and set to take the top job at the Bank of England in July.

"I merely observe that in major jurisdictions a considerable amount of capital has been raised over the course of the last few years, upwards of 600 billion since the crisis," Carney told a news conference at the end of an FSB meeting.

Worries over banks has come to the fore again with problems at Italian lender Monte dei Paschi di Siena (BMPS.MI) but Carney said this was not discussed on Monday.

"It's an unfortunate development for that bank but from a globally systemic perspective it is an idiosyncratic event so no one raised it," Carney said.

The board did not announce any major new initiatives on Monday but gave a progress reports on at times halting progress on regulatory reforms.

TAKING STOCK

Reforms pledged by world leaders four years ago at the height of the 2007-09 financial crisis to make the financial system safer are still far from being completed.

Regulators are bogged down in finalizing the complex rules needed to turn the G20 pledges into laws for banks to apply, with momentum slipping in some cases as governments turn their gaze to reviving growth in economies and worry about too many new rules crimping lending.

The G20 pledged sweeping reforms to make derivatives markets more transparent by the end of 2012 but a full set of rules has yet to be introduced in the European Union or the United States.

The FSB said it will give G20 members a full progress report on derivatives reforms in April.

Another key reform - putting in place mechanisms to wind down big banks without disrupting markets - is also crucial for ensuring taxpayers are off the hook in the next crisis.

"Major financial institutions are working very hard to develop these.. That's to be welcomed. We haven't finished the job but we're working in the right direction," Carney said.

A deadline, originally set for the end of 2010, to forge a single set of global accounting rules, has slipped again.

The FSB gave the International Accounting Standards Board and its U.S. counterpart another six months, to the end of 2013, to say how the G20 goal will be reached.

The FSB's recommendations for actions are not binding on G20 countries but on Monday the watchdog said it was now on a stronger legal footing as an association under Swiss law.

This will give the board "strengthened governance, greater financial autonomy and enhanced capacity to coordinate the development and implementation of financial regulatory policies," it said.

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